Real Estate Q&A: Should I rely on lender-placed insurance or get my own?

By Gary M. SingerSun Sentinel

Friday

Sep 14, 2018 at 9:30 PM

Q: We have let our mortgage lender choose our hazard insurance for our home. Although it was more expensive, we figured that if our lender picked it, then it must be great coverage. A friend just told me this is not the case. What is the truth? — Frank

A: This type of homeowner's insurance coverage is known as "force-placed" or "lender-placed" insurance. All mortgages contain the requirement that you keep your home adequately insured and allow your lender to purchase its insurance policy, which you must pay for, if you do not maintain the proper insurance coverage on your home. Because your lender is not concerned about the price of the policy and may have a relationship with the insurer, these policies are often more expensive than a policy you would choose. Insurance sometimes gets force-placed because the homeowner let the policy lapse, although I find that many people are surprised and only find out when their payments increase.

If your lender does not get the proper notice each year from your insurance carrier, or simply misplaces the notice, it will send you a letter alerting you of the problem. However, many people ignore the letter or don't recognize its importance, thinking it's another updated privacy policy notice or advertisement. When your lender does not hear from you, it finds its own policy and sends you the bill.

To make matters worse, the lender-placed policy is primarily concerned with protecting the lender and is often missing essential coverage for personal items and liability protection. Unfortunately, most homeowners only find out about this omission after a fire, theft or flood, when it is too late.

To make sure that you do not have this problem, always open and carefully review every letter you get from your mortgage lender. If your payment goes up unexpectedly, call to find out why. If it's because of force-placed insurance, immediately find yourself a policy and let your lender know so it can adjust your account. This will not only better protect you, it will also lower your mortgage payments.

— Gary M. Singer is a Florida attorney and board-certified as an expert in real estate law by the Florida Bar. Send him questions online at www.sunsentinel.com/askpro or follow him on Twitter @GarySingerLaw.

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